Bernanke: Fed can be economic supercop

Published
8:00 pm EDT, Monday, July 20, 2009

WASHINGTON

Associated Press

Federal Reserve Chairman Ben Bernanke ran into skepticism Tuesday from lawmakers wary of expanding the Fed's duties to police big financial companies. They argued that the Fed failed to spot problems that led to the financial crisis in the first place.

"The Fed has made some big mistakes," said Rep. Spencer Bachus, R-Ala., ranking member of the House Financial Services Committee.

An Obama administration proposal to make the Fed the supercop of globally interconnected financial companies would be "just inviting a false sense of security that inevitably will be shattered at the expense of the taxpayer," Bachus warned.

Bernanke countered that the administration's proposal would be a "modest reorientation" of the Fed's powers, not a great expansion of them.

The Fed boss sought to assure investors and Congress that the central bank will be able to reel in its extraordinary economic stimulus and prevent a flare up of inflation once a recovery is firmly rooted. Still, any such steps will be far off in the future. The central bank's focus remains "fostering economic recovery," he said.

Bernanke also worked to beat back an administration proposal to create a new consumer protection regulator for financial services and strip some of those duties from the central bank. The House panel delayed a committee vote on that legislation until September.

Consumer groups and lawmakers have blamed the Fed for failing to crack down early on dubious mortgages practices that fed the housing boom and figured into its collapse. Later this week, the Fed will issue a proposal to boost disclosures on mortgages and home equity lines of credit. It also will include new rules governing the compensation of mortgage originators.

Bernanke also argued against congressional proposals to let the Government Accountability Office, Congress' investigative arm, audit the central bank. He feared that audits that delve into the Fed's interest-rate decisions could compromise its independence in setting interest-rate policies.